The Balancing Act Between Disclosure and Confidentiality Under California’s Proposed Hydraulic Fracturing Regulations

In July 2011, the U.S. Energy Information Administration prepared a report detailing the estimated amounts of readily recoverable oil and gas within all the shale deposits in the United States. See Review of Emerging Resources: U.S. Shale Gas and Shale Oil PlaysU.S. Energy Information Administration, July 2011.

Their report estimates that the Monterey shale formation, consisting of an active area of 1,752 square miles in the San Joaquin and Los Angeles basins in California, contains 15.4 billion barrels of oil that can be recovered using existing technologies. To put it in perspective, those 15.4 billion barrels:
  1. are over four times the report’s estimate for the Bakken shale formation (which is fueling North Dakota’s current oil boom), 
  2. would equal Saudi Arabia’s output for more than a decade, and 
  3. would total more oil than Alaska has produced in the last 25 years. 
If these estimates prove true, the Monterey shale formation could increase the nation’s oil output by 25 percent over the course of a few years.

The oil of the Monterey shale formation can only be extracted by the use of hydraulic fracturing. Given the magnitude of the numbers above, the stakes are high and a battle is looming in California between operators seeking to utilize hydraulic fracturing to extract oil from these massive shale beds and those deeply concerned by the potential environmental impacts.

As in many other areas of the country, concerns over hydraulic fracturing in California are well-publicized. Critics are concerned about high water use and possible water contamination, the release of methane, and possible earth tremors (a concern that hits home with many Californians).

Hydraulic fracturing has been conducted in California for more than 50 years. But the California Department of Conservation’s Division of Oil, Gas, and Geothermal Resources (the “Division”) does not currently have regulations tailored to address the specific public concerns about fracturing operations.

In an attempt to fill this gap, on December 18, 2012, the Division released a “discussion draft” of regulations applicable to hydraulic fracturing operations in California (the “HF Regulations”). View the Ca. Dep't. of Conservation's Division of Oil, Gas, and Geothermal Resources' Discussion Draft.

The proposed HF Regulations require operators to disclose information about chemicals used in fracturing operations to a “Chemical Disclosure Registry” (in this case, the chemical registry web site known as developed by the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission).

Such information includes the well operator’s name, hydraulic fracturing date, county where well located, well API number, well name and number, well location, true vertical depth of well, name of productive zone, a complete list of the names, CAS numbers, and maximum concentration, in percent by mass, of each chemical added to the fracturing fluid, trade names, suppliers, a brief description of the intended purpose of each additive contained in the fluid, the volume of carrier fluid used, the disposition of carrier fluid, any radiological components or tracers injected in the well, and the estimated volume of flowback fluid recovered.

Operators have historically resisted publicly disclosing some of the information required by the proposed HF Regulations on the basis that such information constitutes a trade secret (e.g., the chemical composition of the fracturing fluids and information regarding specific proppants). The protection of trade secrets is a statutory right provided by the California Civil Code.1 

The Division does not have the authority to promulgate regulations that would infringe upon that right. The proposed HF Regulations recognize this concern and afford an operator trade secret protection if it is able to demonstrate that:
  1. the trade secret gives the operator a significant economic advantage, 
  2. disclosure of the trade secret would compromise that advantage, 
  3. the information has not been disclosed elsewhere, and 
  4. the fluid or substance cannot be reverse engineered to discover its composition. 
The operator must declare under penalty of perjury that the information withheld meets these trade secret requirements. Information so protected would not be disclosed on the Chemical Disclosure Registry and would be withheld from the Division. Operators withholding such information on the basis of a claim of trade secret protection will post text on the Chemical Disclosure Registry indicating that such information has been withheld as trade secret information and, if the withheld information includes the identity of a chemical, providing the chemical family or similar descriptor associated with the trade secret constituent. 

There are two exceptions to the protection of trade secrets in the proposed HF Regulations. Even information that is deemed to be a trade secret would have to be provided immediately to:

  1. the Division or another public agency if necessary to investigate or respond to a spill or release of fracturing fluid and 
  2. a health care professional when necessary to treat an individual that may have been exposed to fracturing fluid. 
In the latter case, an operator may request, and the health care professional shall provide upon request, a written statement of need and a confidentiality agreement from the health care professional as soon as circumstances permit. 

Those seeking more detailed information about the fracturing process and impact on the environment have suggested that the trade secret exception greatly weakens the proposed HF Regulations. In what appears to be an acknowledgement of these concerns and an extension of an olive branch, the Division has indicated that it would support legislation that would allow the public to directly challenge an assertion of trade secrecy made by an operator.

In addition to seeking trade secret protection, operators may request that certain information about particular wells be maintained by the Division as confidential. The purpose of such confidential status is to avoid disclosure of such information to a competitor. By statute, the Division is required to maintain the confidentially of records relating to an “exploratory well” (i.e., one that seeks to access new, previously-untapped oil or gas resources) for two years.

Operators may also request confidential status for up to two years for wells drilled into existing, known formations or resources if the request for confidential status meets the statutory criteria found in California Public Resources Code Section 3234.2 

For wells subject to treatment as confidential wells, the Division is prohibited from disclosing anything more than the location of a well and the name of the operator.

While most view the proposed HF Regulations as a reasonably balanced approach to the desire for disclosure and legitimate concerns regarding protection of confidential information and trade secrets, some environmental organizations maintain that operators should have to state exactly what is being injected into the ground with no exceptions.3

The Division hopes to commence the formal rulemaking process in February 2013. Prior to commencing the formal rulemaking process, the Division will solicit input on the proposed HF Regulations on an informal basis. Written comments about the proposed HF Regulations may be submitted at any time to

In addition, once the formal rule-making process begins, there will be a minimum 45-day public comment period that will include at least one public comment hearing. The duration of the rule-making process depends on the extent of public participation and the number of revisions the Division makes to the regulations during the process. The Division has estimated that the rule-making process will take eight to ten months to complete.

This article was prepared by Michael Clark ( or 213 892 9382) from Fulbright's Energy Practice.

1 Section 3426.1(d) of the California Civil Code defines a “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) 
derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. 

2 California Public Resources Code Section 3234 provides that the records of other wells may be maintained as confidential information if, based upon information in a written request of the owner or operator, the supervisor determines there are “extenuating circumstances” (an undefined term).

3 “[E]nvironmentalists said the industry should have to state exactly what it wants to inject underground, no exceptions. ‘There should be some way to disclose what those (chemicals) are,’ said George Torgun, staff attorney at Earthjustice, a San Francisco nonprofit.” John Cox, “Oil Regulators Release Draft Fracking Rules.” The Bakersfield Californian (December 18, 2012).

BLM Announces Replacement of Proposed Fracking Rules

On Friday, January 18, 2013, the U.S. Bureau of Land Management announced that it would replace its prior May 2012 proposal with revised rules on the use of hydraulic fracturing.

The Bureau’s spokesman, Blake Androff, stated that the initial draft proposal was revised based on “comments from stakeholders and the public.” 

The Bureau received over 170,000 comments in response to the original proposal. Androff made clear that the updated rule would maintain the components of the initial proposal—including the mandatory disclosure by operators of the fluids used in the fracturing process.

Oil companies and state officials had opposed the withdrawn proposals, and various organizations voiced agreement with the Bureau’s decision to revise its proposed rule. 

American Petroleum Institute President and CEO Jack Gerard praised the announcement, stating that the Bureau’s reconsideration was “a positive first step.” The API had formally commented on the original proposal, requesting extensive changes to the rule.

The Western Energy Alliance also applauded the decision to revise the hydraulic fracturing rules. The WEA had estimated that the annual cost of the original proposal would have amounted to $1.5 billion. The WEA then reiterated its view that, because of state regulation, a federal fracturing rule is unnecessary.

The revised rule was submitted for review to the Office of Management and Budget on January 22, 2013, and is expected to be published in the Federal Register in the first quarter of this year.

This article was prepared by Barclay Nicholson ( or 713 651 3662) Rafe A. Schaefer ( or 713 651 5255) from Fulbright's Litigation Practice Group.

South Dakota Adds Disclosure Requirements to Hydraulic Fracturing Regulations

On January 17, 2013, South Dakota’s Board of Minerals and Environment (“BME”), a subdivision of the state’s Department of Environment and Natural Resources, adopted amendments to South Dakota’s oil and gas well regulations. The amendments specifically address hydraulic fracturing operations.

Under the new rules, operators must submit information to the FracFocus Chemical Disclosure Registry, including, the well fracture date, operator name, true vertical depth, total water volume, and hydraulic fracturing fluid composition.

In doing so, operators must ensure they disclose the trade name, supplier, purpose, any intentionally added ingredients, CAS numbers, the maximum ingredient concentration in the additive, and the maximum ingredient concentration in the hydraulic fracturing fluid. Following the lead of other states, the rules do include a trade secret exemption. The rules also establish detailed standards for interim and final reclamation of abandoned well sites.

The new rules, which were proposed in December 2012, were adopted at a public hearing on January 17, 2013. During that hearing, BME amended the hydraulic fracturing reporting rule (§ 74:12:02:19) to clarify that companies hydraulically fracturing oil and gas wells are only required to disclose ingredients intentionally included in their hydraulic fracturing fluid, and that they are not required to disclose trade secrets or proprietary information.

Amendments to the proposed well site reclamation rules (§§ 74:12:03:06 and 74:12:03:07) involved changes to what constitutes adequate surface reclamation. The original proposed rules described adequate reclamation as returning disturbed areas back to their original condition or a condition acceptable to the surface landowner.

The amended rules describe adequate reclamation as returning disturbed areas to a condition suitable for pre-drilling land use, with an option to reclaim disturbed areas to an alternate land use if acceptable to the surface landowner.

South Dakota is part of the large Bakken shale play, which also encompasses parts of North Dakota, Montana, and Wyoming. However, the state has not seen the same level of hydraulic fracturing activity as has occurred in western North Dakota and other areas with tight shale formations.

This article was prepared by Heather M. Corken ( or 713 651 8386) and Kristen Hulbert ( or 713 651 5303) from Fulbright's Environmental Law Practice Group.

Pennsylvania Sets Rules for Using Mine Wastewater in Fracking Operations

On January 9, 2013, Pennsylvania’s Department of Environmental Protection (DEP) released a White Paper setting out rules governing the use of mining runoff in hydraulic fracking.

The DEP sees this use of the mining wastewater for fracking operations as a way to decrease the oil and gas industry’s reliance on freshwater sources. A drilling operator seeking to use mining wastewater must submit an application to the DEP, accompanied by sampling data to show the level of pollutants.

The applicant must also provide details about the anticipated method of wastewater storage and develop remediation and treatment plans if the water is expected to be released back into the environment after the fracking operation.

This article was prepared by Barclay R. Nicholson ( or 713 651 3662) from Fulbright's Energy Practice.

USGS Offers Insight into Impacts of Fracturing in Fayetteville Shale

A report recently released by the United States Geological Survey (“USGS”) found that water wells in the Fayetteville Shale of north-central Arkansas are, thus far, not contaminated by the area’s hydraulic fracturing activities.

The Fayetteville Shale is a relatively small shale play, with 4,000 wells drilled as of April, 2012. The concern of area residents that their water wells were contaminated by shale activity prompted the USGS’ involvement and subsequent testing.

The USGS sampled 127 domestic water wells in the Fayetteville Shale area for major ions and trace metals, with some samples tested for methane and carbon isotopes.

The USGS also looked for elevated salt levels, as well as methane in the groundwater supply. All levels were found to be consistent with or in lower concentrations than historical records for samples collected between 1951 and 1983.

The most frequently analyzed constituent was chloride, a large component of the produced water accumulated during the hydraulic fracturing process and a significant indicator of whether produced waters had entered shallow groundwater. Interestingly, the historical data revealed statistically larger chloride concentrations than in the samples collected for this study.

The report concludes that while the test results do not indicate an improvement in overall water quality, there is no evidence of groundwater contamination by fracturing fluids or methane in the study area.

This article was prepared by Kristen Hulbert ( or 713 651 5303) from Fulbright's Environmental Practice.

Colorado Requires Testing Near Fracked Wells

On January 7, 2013, Colorado’s Oil & Gas Conservation Commission (COGCC) approved new groundwater protection rules.

Operators must sample all available water sources (to a maximum of four) located within one-half mile of the drilling site, both before and after drilling activities. There must be one pre-drilling sample and two subsequent samples (one within 6 to 12 months and a second within 60 to 72 months) following completion of the well. The pre-drilling sample must be tested for a full suite of analytes to provide a baseline, while the subsequent samples need only be tested for specific oil and gas indicator constituents.

The results of the testing must be provided to the COGCC in an electronic format for posting to the Commission’s website and to the water well owner or landowner within 3 months of collecting the samples.

The rules provide that “[r]esults of sampling obtained to satisfy the [Rule] requirements…, including any changes in the constituents or concentrations of constituents present in the samples, shall not create liability or a presumption of liability against the owner or operator of a well… .”

In the Greater Wattenberg Area (GWA) of northeastern Colorado, the COGCC has set different sampling rules due to the “combination of energy development, agriculture and other industrial and residential use unique to the area.”

In the GWA, the operator must sample one available water source per governmental quarter section or within one-half mile radius if there is no source in the quarter section.

There must be a pre-drilling sample (tested for a full suite of analytes) and one subsequent sample within 6 to 12 months of completion (tested for specific oil and gas indicator constituents).

Also, the COGCC advised that these new rules would exist side-by-side with Weld County’s program that provides water well testing to any well owner requesting it.

Read the COGCC press release.
Read COGCC's groundwater protection rules.

This article was prepared by Barclay R. Nicholson ( or 713 651 3662) from Fulbright's Energy Practice.

New York's Proposed Hydraulic Fracturing Rules

Several New York lawmakers are holding a public hearing on January 10, 2013 to discuss the state’s high volume hydraulic fracturing (HVHF) regulatory process.
New York's Proposed Hydraulic Fracturing Rules

New rules relating to HVHF were proposed and opened for public comment beginning November 29, 2012 through January 11, 2013. 

In addition to the legislators, the League of Women Voters of New York State (LWVNY) sent a letter dated January 7, 2013 to the New York Department of Environmental Conservation (NYSDEC), questioning the feasibility of providing meaningful comments without the completion of the state-commissioned study on the health impacts of expanded gas drilling or the final status of the state environmental impact review. 

These concerns increased after last week’s press release of a draft February 2012 report, indicating that hydraulic fracturing can be done safely. The lawmakers, LWVNY, and others want to suspend the public comment period for the proposed HVHF rules until the state discloses all of its studies and analyses concerning hydraulic fracturing. 

The NYSDEP has until the end of February to finalize its rules for fracking. If the February deadline is missed, the NYSDEC will need to reissue the regulations and hold public hearings, thus delaying the approval of any fracking rules for many months.

Read the notice of hearing
Read the LWVNY letter.

This article was prepared by Barclay R. Nicholson ( or 713 651 3662) from Fulbright's Energy Practice.

Shale Gas and Other Unconventional Resources: A Practitioners Guide

Barclay R. Nicholson, a partner in the Houston office of Norton Rose Fulbright, was chosen to co-author the US and Canada chapter in Global Law and Business' book entitled "Shale Gas: A Practitioner's Guide to Shale Gas & Other Unconventional Resources."

The book provides a timely analysis of the development and regulation of shale gas extraction and the technical and commercial considerations applicable to shale gas production around the world. Specifically, Nicholson co-authored the chapter comparing shale gas development and hydraulic fracturing regulations in the United States and Canada.

The chapter provides practical insight on unconventional gas and oil resources and regulations in both countries. Additional topics that are covered in this book include gas sales agreements, shale gas disputes, water use and disposal, joint venture agreements, and public policy and opinion on shale gas.

"Shale Gas: A Practitioner's Guide to Shale Gas & Other Unconventional Resources" is intended to be a reference guide for natural gas producers, lawyers in private practice and in-house, and energy industry advisers.

The book is available through

New York DEC "Leaks" Summary on Impact Fracking Has on Health

On January 3, 2013, a draft February 2012 report that was prepared for the New York Department of Environmental Conservation (DEC) relating to potential health impacts from hydraulic fracturing was “leaked” to the news media.

The eight-page draft summary concludes that “significant adverse impacts on human health are not expected from routine HVHF [high volume hydraulic fracturing] operations” if done within the DEC’s proposed regulatory framework. 

A DEC spokeswoman dismissed the draft as outdated, not reflecting the DEC’s policy, and incomplete. 

This draft was probably prepared for review and inclusion in an extensive environmental impact study of the shale gas industry which is to be released by the DEC in February 2013. 

The DEC has stated that this final February 2013 version will include revisions based on public comments and a health review currently under way by the New York Health Department and three outside experts.

Read the eight-page draft report.

This article was prepared by Barclay R. Nicholson ( or 713 651 3662) from Fulbright's Energy Practice.

ERCB Releases Investigation Report Into Hydraulic Fracturing Blowout

On January 13, 2012 in the rural Garrington, Alberta field Midway Energy Ltd. hydraulically fractured a horizontal well bore at a depth of 6,069 feet (1850 m) which caused a surface blowout of a nearby Wild Stream Exploration Inc. vertical oil well also completed at 6,069 feet. Alberta's Energy Resources Conservation Board (ERCB) investigated the incident and has publicly released its investigation report.

The ERCB noted that segments of the Midway wellbore where four fracture stages were conducted were only 423 feet (129 m) apart. The Board determined that the four fracture treatments took place between 12:08 pm and 1:17 pm and that one of these stages was most likely to have communicated with the Wild Stream well.

Significant decreases in hydraulic fracturing pumping pressure can be an early indication of interwellbore communication but did not occur in this case. The first sign of communication was at approximately 3:00 pm at the connected Wild Stream production battery where there was a sudden increase in gas pressure. The compressor went down and it was later learned that the fuel gas supply had been contaminated with nitrogen gas, a component of the Midway fracture fluids. At approximately 4:30 pm a member of the public reported fluids and an oil mist being discharged at the surface from the Wild Stream well, fouling an area of about 650 by 750 feet.

The ERCB found in its investigation that Midway had failed to follow its internal protocol which modeled the fracture size and the separation distance from other wells. To design its frac, Midway used a general frac model for the Garrington field. Based on that model, the company's protocol was to space fractures from adjacent wells at 1.5 times the modeled half length of the fracture. For this well, Midway used an estimated 260 to 295 foot (80 - 90 m) frac half length. Midway's protocol called for spacing at 442 feet (135 m). As the Wild Stream well was a close as 423 feet (129 m), the ERCB found this error to be the root cause of the incident.

It also found that the surface piping, discharge hoses, fuel gas lines and pressure relief valve on the Wild Stream well were not pressure rated to withstand the pressure required for hydraulic fracturing. Also, Midway did not notify Wild Stream before beginning its fracturing operations. At that time, there was no regulatory requirement in Alberta to notify nearby well owners.

The Board also found that the companies managed their response to the incident appropriately, potential environmental damage was promptly mitigated and that the incident did not impact the public, livestock groundwater or surface water bodies. The Board also reminded the public that this type of incident is vary rare in Alberta. More than 171,000 oil and gas wells have been hydraulically fractured in Alberta since the 1950s. In recent years, more than 5,000 multi-stage hydraulic fracturing operations have been conducted in horizontal wells in Alberta.

The ERCB did not bring any enforcement action against Midway or Wild Stream as they had not violated any regulations then in place. However, 10 days later the Board released Bulletin 2012-02-Hydraulic Fracturing: Interwellbore Communication between Energy Wells requiring operators, among other things, to undertake fracture propagation modelling and notify offset well owners. Since then the ERCB has also released for public comment a draft Hydraulic Fracturing Directive to regulate subsurface aspects of hydraulic fracturing.

This article was prepared by Barclay R. Nicholson ( or 713 651 3662) from Fulbright's Energy Practice.